Brazil Ithaca Restaurant & Foods Corp.s decision to pursue the current opportunity for development, installation and operation of infrastructure in Developian should be made with full consideration of the implications of corporate social responsibility and international labor law and how they may bear upon the company. I will begin with an overview of the situation and our current CSR policy/strategy. This will be followed by a listing of the potential positive and negative aspects of the Green Growth Project in light of our CSR. Then make recommendations for winning and limiting potential liabilities if the decision is made to go forward. Overview: Developia gained independence from European colonial rule forty years ago. It is a poor, underdevelopment nation far below the levels of Mexico and Thailand. This developing nation has insignificant markets, infrastructure, technology, and governmental system. Most of the country sustains itself through agriculture and utilizing the resources of their tropical rainforest. The capital city does have an export processing zone (EPZ) with low wage t-shirt assembly factories that employs a few thousand natives. Child labor is found in both agriculture and manufacturing sectors, which is common in developing nations. The current leader of the government is President X, who was an originally popular/loved for his leadership in their struggle for liberation. But in the past decade President X has developed into an authoritarian ruler that uses strong-arm tactics against political opponents, turning Developia into a one party state. Even though independent unions are routinely suppressed, the country does have a national trade union federation, Developian Federation of Labor, which is supported by the Ministry of labor. Employers who establish a DFL union in their workplace receive favorable treatment from the Labor Ministry. Global outsourcing of our manufactured goods to lower cost developing nations is our current economic model to remain competitive in the global market. These lower costs are associated with the delivery of raw materials and component parts, power, labor, transportation and regulation. For example the low cost of labor in developing nations arises from the transition of labor from a very-low cost agricultural base into the manufacturing sector, combined with low added costs associated with worker safety and labor standards thought to be reasonable in the more developed world. Competition among developing nations for foreign investment in manufacturing facilities is fierce, as producers from the US, EU, Japan, Korea and the Asian Tigers have demonstrated a continuing willingness to migrate production to the lowest cost jurisdictions as may be required to meet severe costbased competition in their home markets. Therefore domestic and foreign operators and governments in developing nations resist adoption of practices which will undermine low costs, unless and until the social and economic benefits become evident as a natural part of the nations eventual transition to a more developed nation. Indeed, some believe that foreign investment and globalization cause a downward spiral of labor, social, and environmental standards, as developing nations compete against one another to achieve the lowest cost positions, while others believe that trade and investment growth in developing nations have positive effects on labor standards, wages, and employment, evident in the Asian Tigers. With multinational corporations outsourcing in an increasing number of countries around the world there is growing concern about the potential linkages between their corporate activities and the decline of standards. Recently there have
been several sandals involving MNCs investment in unstable developing nations, highlighting some of the negative impacts/influences of the investment. As these concerns of how companies interact with their political and social environmental abroad increases, so does our need to develop comprehensive Corporate Social Responsibility strategies. The key is to develop strategies that can simultaneously address greater CSR and company goals of maximizing profits. Corporate Social Responsibility is reaching business success with ethical values and respect for workers, communities, society, and our environment. Neoclassical economic theory believes corporations main or sole responsibility is to its shareholders. That any other obligation offsets the natural flow of capitalism. The 1960s and 70s civil rights, social justice, and environmental movements developed the social view that those with great power have great responsibility. As Industrialization and globalization continues to benefit those the winning end, growing MNCs annual revenues larger then nations annual GNPs (Wal-Mart). It increases development, industry, and technology raising standards of living around the world. At the same time depleting natural resources, polluting the earth, decreasing labor standards, spiraling those on the losing end down. The global economy has open borders, blurred nationalism, and deregulated governments. Now that MNCs have more influence then a government in some respects, society believes that businesses have to accept responsibility of these injustices and utilize their power to solve them. CSR broadens the classical view and enables corporations to take responsibility for all of its stakeholders. Many business men still agree with Milton Freedman that a companys sole responsibility is to increase profits. That giving away money to social/environmental programs imposes taxes on stockholders and taxation is responsibility of the government. They also believe that corporate managers do not have the expertise to make social decisions. That giving corporations decisions making power in the social/environmental domain, will give them too much power. On the other hand people believe that corporations should take responsibility for their impacts on society and the environment; that they should utilize their resources and power to make the world a better place. The most significant argument to our organization is the business case corporate social responsibility; that there is a positive correlation between CSR and profitability. Today there is a growing awareness from society and businessmen in developed and developing countries that socially responsible business is better business, increasing efficiencies and opportunities and while decreasing inefficiencies and potential business risks. Potential Corporate Benefits: Positive image Appearance of long-term success / sustainability Ethics, actions, and goals that align with the public Increased trust/confidence Decreased perception of risk Increased investment SRIs, governments, social organizations Increased Sales Improved product quality Increased customer retention / loyalty Increased customer satisfaction
Increased Brand recognition the Brand Effect Increased Efficiency/Productivity Decreased political, NGO, and social opposition Decreased regulations and trade barriers Increased business opportunities Decreased political/social turmoil Corruption, authoritarianism, activism, warfare etc. Decreased inspections and negative attention Decreased business risks Advanced technology efficiency Increased and competitiveness Long-term sustainability Positive relationship with stakeholders Union management partnership Efficient / integrative collective bargaining Superior labor force Increased training, skills, and productivity Increased motivation, innovation, and job satisfaction Increased loyalty Reduced Labor Costs Decreased arbitrations and grievances Decreased boycotts, strikes, lockouts etc. Increased loyalty decreased turnover Decreased supervision/ surveillance Increased efficiency increased production Reduced Production Costs Alternative fuels Responsible/decreased resource consumption Long term production sustainability
There benefits are presumed to offset the higher costs associated with Corporate Social Responsibility, but sincenothing is as good as it seems there are potential negatives that stem from initiatives. First the business case for CSR assumes that the consumer has accurate information about the company and its associated public service. It also assumes that consumers are always willing to pay a premium for products with jointly supplied benefits. Both of these assumptions are inaccurate because most of the public is uneducated or not accurately informed about companies, their policies, and social issues. This lack of transparency and accuracy hinders the effectiveness of any initiative. Also market participants have a limited willingness to pay a premium for the provision of a public good, especially in the recent economic downturn. Since a corporations goal is to act on behalf of its shareholders many feel it is irresponsible for the management of a company to use corporate assets for social causes. CSR initiatives can aggravate shareholders and discourage future investment. Lastly CSR initiatives put companies on an international stage which can actually increase investigations, prosecutions, regulations, and negative media by governments, NGOs and society. Ones Goodwill can back fire with reactionary investigations, like the Nike factories case, or accusations of green washing like British Petroleum experienced. These are all potentially negative effects the Green Growth Project can experience in light of IBRFs corporate Responsibility. The most significant negative
aspect of the Project is the authoritarian / oppressive government present in Developia. The current President has an authoritative rule and uses strong-arm tactics against political opponents. Even though in the most recent elections the opposition party won, President X nullified the election, remained in office, and appointed himself the head of the army. He then barred the opposition party from political action by forcing them into house arrest, tapping their conversations and suppressing their freedoms. It is actually a crime to insult the state and critics of the government are often arrested and charged under this law. Investment into a developing country with civil unrest and authoritative government can lead to serious issues. For example UNOCAL was accused of contributing to the Burmese governments suppressive authoritarian rule. That UNOCAL knowingly supported a government that forces its people to work on corporate projects through enslavement and murdering activists. The lawsuit was not only costly but it created a negative public image that they have still been unable to elevate. IBRF could be linked to the authoritative and suppressive government not only by NGOs and the public but also the native population. Through our mutual support with the government in order to sustain the project and the use of the despotic national union, the Developian Federation of Labor, the Developians could view IBRF in the same light as the government. As an American corporation attempting to industrialize the company can be accused of imposing western culture onto the country. This would decrease our ability to effectively organize and utilize the workforce. It would also increase social activism and warfare within the country, but most significantly activism directed towards IBRF. If IBRF actively tries to improve or openly disagrees with the current political polices the fact that it is a crime to insult the state can lead to major issues. Any suggestions or demands of social improvement in the initial investment proposal might kill our investment opportunity in Developia all together. Just trying to save face during operation, like something as little as releasing a public statement saying we disagree with the governments suppression, can hinder the project and lead to political and legal conflict by President X. The fact that child labor is present in Developias agriculture and manufacturing industries is another negative aspect of the project. Since child labor is one the most sympathized and supported social injustices, NGOs and social activists would be all over us, and our public image would be damaged. Environmental organizations might also be upset with the projects deforestation, resource consumption, and pollution. In order for CSR initiatives/programs to be successful, it is vital for the CSR principles to be a part of the corporations values and strategies. A half-attempted program will only lead to negative outcomes. Besides the evident financial benefits of installing operations in Developia, with an effective and integrative CSR project strategy the Green Growth Project will generate many positives for IBRF. Recommended Strategy: Political Strategy Make an agreement within the contract that forbids Developian government from any authoritative / oppressive actions within the realm of the project. Positives: avoid linkage to/support of authoritative rule Educate the government about the advantages of diplomacy and civil obedience for a developing nation trying to succeed in the global market. Educate the importance of these factors for the success of the current and
future projects. Utilize the economic appeal of the project and development to influence diplomacy. If it is too risky to demand right away, you can gradually work with the government to influence positive change. Positives: Praise for spreading fairness and diplomacy Efficient/positive government relationship Labor Relations Install a Developian Federation of Labor (DFL) union Positive: Favorable treatment from the Labor Ministry Develop a positive/integrative relationship between labor and management Positives: Efficient collective bargaining Avoid costly labor disputes grievances, strikes, boycotts etc. Provide: Living wages, safe working conditions, housing opportunities etc. Training/advancement opportunities Positive: Superior employees Abolish Child labor Absolutely make sure it is not happening within the project High security check for fake ids Work to stop the need for child labor in the country Pay living wages, help establish schools etc. Local Community Relations Give back to the community Educational and training facilities Support social peace and equality Help locals obtain necessities of life clean water, food, shelter, healthcare Sustainable water system, housing projects, hospitals etc. Positives Healthy, trained, well-educated workforce and local community Local support instead of opposition Positive image Environmental Strategy